The digital economy is transforming the way the travel industry operates. In nearly every sector, early adopters are leading the way.

By rethinking business models, these innovators are opening up new markets. Leveraged technologies allow different experiences for consumers that disrupt the traditional ways companies do business.

Five components of digital economy

What’s driving the digital economy? There are five technology trends that are propelling this revolutionary evolution.

Hyperconnectivity. Objects and people the world over are connected in ways they never were before. Much of this connection is via the Internet of Things. The Internet of Things is the network of objects (things) equipped with sensors and software. When connected with wireless technology, these “things” can capture, analyze, send, and collect data. That information can be sent to computers and devices and be used to evaluate performance and offer insights.

Supercomputing. These devices generate large amounts of data. Computing technology allows for better analysis of that information. Networked and in-memory computing provide robust tools to collect and analyze all that data. These analyses allow companies to act on information and trends far faster than previously.

Cloud computing. Data and analysis are most effective when they can be used quickly and broadly. With cloud computing, insights are available around the world. Different platforms and devices can access the same information in real time. Decision makers can respond and pivot wherever and whenever they are. Cloud computing makes businesses nimble. Resources can be reallocated and cost savings gained with rapid access.

Cybersecurity. With so much data and so much access to that data, protection and security are critical. Fortunately, new tools such as biometrics, multi-factor authentication, and behavioral analytics are available. Such tools protect against attacks from hackers and other parties.

Outcomes. As our world becomes smarter, consumer expectations are changing. Outcomes are what consumers expect. Businesses must be able to deliver on what consumers want in the moment of need, regardless of where they are or the device they are using. Delighting consumers with exceptional customer service, hyper-responsivity, and new experiences leads to more market share.

Early adopters are winning

Already we see evidence of companies leveraging these digital tools to create and redefine business models. Taxi companies have no taxis. Lodging companies do not own hotels.

Airbnb now offers more rooms than some of the most prominent and successful hotel chains in the world. Uber provides one-touch access to rides and transportation without waiting at an airport taxi stand.

Other emerging companies are providing value-added services to consumers in the traditional leisure travel sectors. Skiplagged is an app that finds “hidden city” fares that are far cheaper than some of the commercially published prices.

Seateroo is another service that leverages the so-called sharing economy. The service lets passengers swap airline seats in exchange for payment. Seateroo serves every aspect of the market, including order entry, negotiation, and electronic payments.

What do these new players have in common? They offer consumers something different. They connect with consumers and offer them goods and services they want, at a price point they are willing to pay.

Travelers are empowered. They can review, select, consume, and experience travel in new ways. They have far more control and influence on the newly emergent players than ever possible previously.

Airlines slow to react

Airlines have been slow to respond to these innovations and embrace the digital economy. As a recent Harvard Business Review article noted, airlines have focused on non-disruptive areas to grow market share. These include an increased focus on efficiency (smaller seats, baggage fees, charging for in-flight meals, and entertainment).

Airlines have also turned to international global alliances to help keep planes full. Finally, airlines are continuing to pursue mergers as a way to gain access to more routes and a larger market share.

The result, as the article states, is “a bunch of companies trapped in their customer layer and unable to grow in revenue – except through external means.”

Instead, airlines should embrace these new digital opportunities. Doing so means taking a broad new approach to their models. Here are a few ways the industry can catch up.

Offer better traveler loyalty management with personalized travel experiences for their customers, knowing the passengers’ personal preferences and needs in order to exceed expectations.

Think like retailers by offering flyers richer shopping experiences when they purchase travel, giving them more options and flexibility.

Create smarter operations that use real-time data to accelerate repair and replacement, and deploy predictive modeling to anticipate and address delays.

Use predictive modeling for improved safety and maintenance as opposed to the traditional reactive model. Data modeling creates efficiency by reducing the disconnects between finance, ticket sales, flight, and analytics data sets.

Rich opportunities

Airlines that understand the quickly shifting dynamics are going to thrive in the passenger travel market. Digital innovations will only continue to disrupt the travel industry.

Airlines need to recognize that today, every company is a digital company. The companies that excel in the near future will take a leading role in reinventing their business models by digitizing more business components and passenger engagement and partnering with other market entities to leverage economies of scale.

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About Paul Pessutti

Paul Pessutti is Senior Vice President and General Manager of the Travel, Transportation, and Hospitality Industry Unit at SAP. Applying over 20 years of experience in this area, Paul is responsible for establishing and maintaining key customer relationships, ensuring customer success, enhancing the solution portfolio, growing the partner ecosystem, and acting as the brand ambassador worldwide. The industry consists of nine industry segments including airlines, airports, passenger transport, hospitality, travel service providers, freight forwarding and third parties, rail cargo, liner shipping, and trucking.